Ericsson and STMicro agree ST-Ericsson divorce terms, with 1,600 jobs on the line

This story was updated at 4:30am PT with confirmation from Ericsson that ST-Ericsson’s recently-announced NovaThor chipsets have been cancelled.

With STMicroelectronics having indicated back in December that it wanted out of its chipmaking joint venture with Ericsson, and with Ericsson having politely declined to buy the half it didn’t already own, it was only a matter of time for ST-Ericsson. The question was how it would go, and now we know the answer: perhaps predictably, Ericsson will take on the modem side of the business and STMicro will take on other existing products as well as some of the manufacturing facilities. The rest will be shut down.

As for jobs, around 1,800 employees and contractors will transfer to Ericsson (mostly in Sweden, Germany, India and China) and around 950 to STMicro (mostly in France and Italy). Approximately 1,600 employees are likely to find themselves without a job – 50-80 of them in Germany and 400-600 in Sweden.

Former ST-Ericsson CEO Didier Lamouche announced his resignation a week back and, according to Monday’s announcement, his replacement from 1 April will be current COO Carlo Ferro. Ferro won’t be in place for long, though, as STMicro and Ericsson said they expected the breakup to be completed during the third quarter of the year.

Ericsson chief Hans Vestberg said his company saw a great future for the “thin modem” side of ST-Ericsson (the term refers to multimodal, low-power modems that draw their intelligence from the associated mobile application processor), which Ericsson will now run as a standalone business:

“Ericsson continues to believe that the thin modems hold a strategic value to the wireless industry. With this move Ericsson will create a highly focused ‘thin modem only’ operation — an area in which both parents have invested significant amounts to establish industry leading technology and intellectual property. Initial customer contacts give support to the belief that our modems will meet the requirements of the manufacturers in the rapidly growing smartphone and tablet market.”

ST-Ericsson had been hemorrhaging money for many quarters. Indeed, it had never been profitable since being established in 2008, but it was particularly damaged by the negative fortunes of its big two customers, Sony-Ericsson (now entirely a Sony affair) and Nokia, which used ST-Ericsson chips in its low-end phones but never adopted the NovaThor system-on-a-chip (SoC) platform for its Windows Phones, as ST-Ericsson claimed it would back in 2011. Nokia’s Lumia handsets continue to use Qualcomm chipsets, as do most other high-end smartphones these days.

ST-Ericsson had only just unveiled its latest NovaThor chipsets last month at Mobile World Congress. However, a spokewoman for Ericsson told me that these new chipsets — namely the the L8540 and L8580 lines — are being immediately discontinued. The ageing U-series, such as the U8500 that was announced in 2011 and that still powers midrange devices such as the Samsung Galaxy SIII Mini, will continue under STMicro’s auspices, she added.